Mark Carney - Sterling zone ‘could lead to crisis’

Sharing sterling between an independent Scotland and the rest of the UK could lead to eurozone-style crises unless firm foundations are put in place, Bank of England governor Mark Carney has said.

An effective union would also force a newly-independent Scotland to hand over some national sovereignty, he said in a speech at a business lunch in Edinburgh.

He intervened on the technicalities for negotiations less than eight months before people in Scotland decide whether to leave the UK.

“If such deliberations ever were to happen, they would need to consider carefully what the economics of currency unions suggest are the necessary foundations for a durable union, particularly given the clear risks if these foundations are not in place,” Mr Carney said.

“Those risks have been demonstrated clearly in the euro area over recent years, with sovereign debt crises, financial fragmentation and large divergences in economic performance. The euro area is now beginning to rectify its institutional shortcomings, but further, very significant steps must be taken to expand the sharing of risks and pooling of fiscal resources.

“In short, a durable, successful currency union requires some ceding of national sovereignty.

“It is likely that similar institutional arrangements would be necessary to support a monetary union between an independent Scotland and the rest of the UK.”

He added: “Decisions that cede sovereignty and limit autonomy are rightly choices for elected governments and involve considerations beyond mere economics. For those considerations, others are better placed to comment.”